Ezeatm Ltd v Zani
[2014] WASC 25
•31 JANUARY 2014
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: EZEATM LTD -v- ZANI [2014] WASC 25
CORAM: LE MIERE J
HEARD: 14 JANUARY 2014
DELIVERED : 31 JANUARY 2014
FILE NO/S: CIV 2959 of 2013
BETWEEN: EZEATM LTD
Plaintiff
AND
TODD ZANI
Defendant
Catchwords:
Practice and procedure - Interlocutory injunction - Restraint of trade covenant - Prima facie case that restraint is enforceable - Prima facie case for final relief established - Damages inadequate - Balance of convenience favours grant
Legislation:
Nil
Result:
Interlocutory injunction granted
Category: B
Representation:
Counsel:
Plaintiff: Mr C E Chenu
Defendant: Mr I R Freeman
Solicitors:
Plaintiff: Bennett + Co
Defendant: Lavan Legal
Case(s) referred to in judgment(s):
Emeco International Pty Ltd v O'Shea [2012] WASC 282
Greetings Oxford Koala Hotel Pty Ltd v Oxford Square Investments Pty Ltd (1989) 18 NSWLR 33
Hunt v Pascoe (1990) 21 NSWLR 10
WPS Enterprises Pty Ltd v Radford (2009) 22 VR 1
LE MIERE J: By an agreement dated 8 June 2011 (Asset Sale Agreement) between the plaintiff (then named Oakajee Investments Ltd), ACN 143 866 666 Pty Ltd (then named Ezeatm Pty Ltd), which I will refer to as ACN, the defendant (Todd Zani) and his brother (Chad Zani), ACN agreed to sell to the plaintiff the ATM deployment business carried on by it (the Business) together with assets used to carry on the Business. Clause 14 of the Asset Sale Agreement provides, amongst other things, that the Vendor Parties, which includes the defendant, will not engage in any business or activity which is similar to and in competition with the Business.
By an agreement made in 2011 (Executive Service Agreement) between the plaintiff and the defendant, the plaintiff employed the defendant as a fulltime executive director. The Executive Service Agreement also contains a covenant restraining the defendant from engaging in any business or activity similar to and in competition with the Business. The plaintiff terminated the defendant's employment on or about 3 June 2013 by notice. The restraint clause in the Executive Service Agreement continues in effect for one year after its termination.
Star Payment Systems Pty Ltd was registered on 10 September 2013 and carries on an ATM deployment business. The plaintiff says that the defendant is involved with Star Payment Systems and its business in breach of the restraint covenants in the Asset Sale Agreement and the Executive Services Agreement. The plaintiff has applied for an interlocutory injunction to restrain the defendant from being involved with Star Payment Systems or otherwise acting in breach of the restraint covenants. The plaintiff put its case in reliance upon the restraint covenant in the Asset Sale Agreement and it is unnecessary to consider the restraint in the Executive Services Agreement for the purposes of determining this interlocutory application.
The restraint clause
The operative part of the restraint covenant is cl 14.2 of the Asset Sale Agreement which provides:
The Vendor Parties each jointly and severally undertake to the Purchaser that the Prohibited Persons will not:
(a)engage in any business or activity which:
(i)is the same or similar to the whole or any part or parts of the Business; and
(ii)is in competition with the Business or any material part of it;
(b)solicit, canvass, approach or accept any approach from any person who was at any time during the 6 month period ending on the date on which Completion occurs a customer of the Business with a view to obtaining the custom of that person in a business that is the same or similar to the Business and is in competition with the Business;
(c)interfere with the relationship between the Business and its customers, employees or suppliers; or
(d)induce or assist in the inducement of any employee of the Purchaser to leave that employment.
The defendant is a Vendor Party and a Prohibited Person. Clause 14.1 defines 'engage in' as follows:
'engage in' means to carry on, participate in, provide finance or services, or otherwise be directly or indirectly involved as a shareholder, unitholder, director, consultant, adviser, contractor, principal, agent, manager, employee, beneficiary, partner, associate, trustee or financier.
The restraint clause is in the form commonly known as a cascading or step clause which provides for a number of permutations around the time period and geographic area covered. The agreement provides that each permutation is a separate restraint and that any invalid permutations are severable. The undertakings in cl 14.2 are given for a period commencing on the date on which completion of the sale of the Business and assets occurred, that is 5 October 2011, and ending on the third anniversary of the completion date (5 October 2014) and the fourth anniversary of the completion date (5 October 2015). The geographic scope of the restraints is within Western Australia and within Australia. By cl 14.7 the defendant acknowledged that all the restrictions are reasonable in the circumstances and necessary to protect the goodwill of the Business, that damages are not an adequate remedy if the defendant breaches the restraint clause and the plaintiff may apply for injunctive relief if the defendant breaches or threatens to breach the restraint clause.
The issues
There is evidence that Star Payment Systems is engaging in a business similar to and in competition with the Business. The defendant did not argue otherwise. The plaintiff says, but the defendant denies, that there is evidence that the defendant has breached the restraint clause by providing services to Star Payment Systems and being directly or indirectly involved in Star Payment Systems' business as a consultant, advisor, contractor or beneficiary. A second issue is whether the restraint clause is enforceable or is an unreasonable restraint of trade and void. If the plaintiff has made out a prima facie case for final relief then the court must decide if the balance of convenience favours the grant of an injunction. The defendant says that if the court finds that the plaintiff has made out a prima facie case it should nevertheless not grant an interlocutory injunction because damages would be an adequate remedy.
Prima facie case that restraint is enforceable
In order to be considered reasonable, a restraint of trade must be reasonable by reference to the interests of the parties and the interests of the public. The party seeking to enforce a restraint of trade carries the burden of proving that the restraint is reasonable as between the parties. The party claiming the restraint of trade clause is void carries the burden of proving that the restraint is unreasonable by reference to the interests of the public. The test of reasonableness will generally be applied as at the time that the agreement was made by the parties. The purchase of a business will usually justify the imposition of a restraint of trade on the seller of the business because the purchaser acquires a goodwill which is a legitimate interest to protect. In this case the plaintiff has a legitimate interest in protecting the goodwill of the business it purchased from ACN. The defendant did not argue that there is not a prima facie case that the restraint clause in the Asset Sale Agreement is enforceable. In any event the plaintiff has made out a prima facie case that the restraint clause is not wider than is reasonably necessary to protect the plaintiff's legitimate interest in the goodwill of the business purchased. The Business involves the deployment of ATMs throughout Australia. There is a prima facie case that the widest geographical reach of the restraints, within Australia, and the longest duration of the restraint, four years, is reasonable.
Breach
The defendant's principal argument is that there is no, or no sufficient, evidence that the defendant has breached the restraint clause. The plaintiff says the defendant has breached the restraint clause by indirectly providing accounting services to Star Payment Systems. The defendant is the sole director and shareholder of the company Ezetax Pty Ltd which the defendant has sworn 'provides accounting services to Star Payment Systems Pty Ltd pursuant to a retainer'.
Counsel for the defendant, Mr Freeman, submitted that, as a matter of construction of the restraint clause, it was not breached by the defendant, through his company, providing accounting services to Star Payment Systems. Mr Freeman said that it is not sufficient that the defendant indirectly provided services to Star Payment Systems, the plaintiff must prove that the defendant provided services 'in' Star Payment Systems' business. The restraint clause is to not 'engage in' any business or activity which is similar to and in competition with the Business. The phrase 'engage in' is defined to mean, amongst other things, to provide services, or otherwise be directly or indirectly involved in a number of specified capacities. Merely providing services to a competing business may not be a breach of the restraint clause. For example, providing services which are not part of the core activities of the business on one occasion on an arm's length basis may not be a breach of the covenant. On the other hand, providing services on a continuous basis, the carrying out of which are a necessary and integral part of the business, may be a breach of the covenant. Whether or not providing services to the competing business constitutes a breach depends on the facts of a particular case. Accounting services includes financial accounting and management accounting. It includes measuring and recording business transactions. Measuring and recording business transactions and preparing financial statements or reports are an integral part of a business such as that operated by the plaintiff. The defendant providing accounting services to a competing business is capable of being a breach of the restraint clause.
On 28 December 2013 Douglas Rose, the managing director of the plaintiff, sent an online enquiry to Star Payment Systems through their website. Mr Rose received an emailed response which ended with the words 'Regards, Todd Zani and the team at Star Payment Systems'. At the bottom of the response are the words 'this email was sent by Todd Zani, Star Payment Systems, Unit 1, 25 Montgomery Way, Malaga'. That address is the principal place of business of Star Payment Systems. The defendant has sworn that he became aware that Star Payment Systems had generated such a reply on 10 January 2014, which is after these proceedings were commenced. Mr Zani says that he contacted Melissa Godbold of Star Payment Systems and Nick Russell of Woocom, the company which designed the Star Payment Systems' website, to ensure that the response was altered to delete reference to Mr Zani and was assured that the change would be undertaken immediately. Mr Zani says that Woocom received their instructions to design the website from Ms Godbold, Shaun Sutton and Mike Fairclough, the chief executive officer of Star Payment Systems. The defendant has given no evidence and offered no explanation as to how or why the email response purported to be from him and the team at Star Payment Systems and to have been sent by him. In the absence of any contrary explanation, the inference to be drawn from the evidence is that Ms Godbold, Mr Sutton and Mr Fairclough instructed Woocom to cause the website to respond in the way that it did and did so because the defendant is involved in the operation of Star Payment Systems' business.
Apart from providing accounting services to Star Payment Systems, the plaintiff says that there are other circumstances which give rise to an inference that the defendant has been directly or indirectly involved as a consultant, advisor, contractor, principal, agent, manager or beneficiary in Star Payment Systems' business. The plaintiff says that the starkest circumstance is the email response from 'Todd Zani and the team at Star Payment Systems' generated by the Star Payment Systems' website to which I have referred. The plaintiff says there are other circumstances which give rise to the inference that the plaintiff is involved in Star Payment Systems as follows:
1.the occupation of the Ezetax Pty Ltd premises by Star Payment Systems;
2.similarities between the websites of the plaintiff and Star Payment Systems (including the direct copying of text by Star Payment Systems from the Ezeatm website);
3.the use by Star Payment Systems of the brand word 'Stargroup', which is part of the former name of Mr Zani's incorporated accounting practice, Ezetax Pty Ltd (Stargroup Financial Services Pty Ltd).
4.the fact that a number of staff who have resigned or otherwise left the plaintiff's employ, now work at Star [P]ayment Systems;
5.the initial 100% ownership of Star Payment Systems Pty Ltd by Hover Holdings Pty Ltd, an entity which was a shareholder of the Ezeatm business before it was sold by Ezeatm Pty Ltd to the plaintiff, and which is a company of Mr & Mrs Ognenis, who are clients of Mr Zani's Ezetax Pty Ltd.
6.the transfer of Star Payment Systems' Pty Ltd entire share capital from Hover Holdings Pty Ltd to Stargroup Pty Ltd on 22 November 2013.
7.the shareholding of Tomialcocl Pty Ltd in Stargroup Pty Ltd of approximately 31.5% of the issued capital; the sole director and shareholder of Tomialcocl Pty Ltd is Susan Naismith, an employee of Ezetax Pty Ltd and the cousin of the defendant;
8.the fact that Tomialcocl Pty Ltd does not hold its shares in Stargroup Pty Ltd beneficially;
9.the fact that the principal place of business of Star Payment Systems Pty Ltd, Stargroup Pty Ltd and Tomialcocl Pty Ltd is the Malaga premises of Ezetax Pty Ltd;
10.The fact that Zaffer Soemya is a director of Star Payment Systems Pty Ltd and of Stargroup Pty Ltd; Mr Soemya was a non executive director of the defendant for a period of 18 months whilst the defendant was its executive officer.
The meaning of 'involved in' gives rise to a further question of construction. The restraint clause prohibits the defendant, amongst other things, from being directly or indirectly involved as a shareholder, unit holder, director, consultant, advisor, contractor, principal, agent, manager, employee, beneficiary, partner, associate, trustee or financier in any business or activity which is the same or similar to the Business and in competition with it. The phrase 'directly or indirectly involved in' potentially has a very wide meaning. It connotes taking part in, assisting in or having some connection with the carrying on of a business. There must be some limit placed on the words 'directly or indirectly involved in'. The meaning of 'directly or indirectly involved' is qualified by the following words which require that the person be involved in one of the stated capacities. Some of those capacities, for example, consultant and advisor, are themselves capable of a very wide meaning. A person may be a consultant or an advisor without receiving any remuneration and having only an intermittent connection with the business. The court should look at the facts of the particular case and look at the business meaning of the words to determine whether the restraint clause is breached.
The plaintiff says the defendant has breached the restraint covenant indirectly, through his company Ezetax Pty Ltd subleasing to Star Payment Systems the premises from which Star Payment Systems carries on its business as well as being a circumstance, together with the other circumstances referred to, giving rise to the inference that the plaintiff is directly or indirectly involved in the business of Star Payment Systems. The leasing of premises will not usually constitute being involved in a business. However, it may be, from a consideration of all the aspects of the relationship between the parties, that the court may conclude that the landlord is involved in the business: see Hunt v Pascoe (1990) 21 NSWLR 10 and WPS Enterprises Pty Ltd v Radford (2009) 22 VR 1 where the issue was whether the defendant was 'interested in' the relevant business.
The plaintiff also says the defendant has breached the covenant by being a beneficiary of the trust which owns the Star Payment Systems business. All of the shares in Star Payment Systems are held by Stargroup Pty Ltd. Tomialcocl Pty Ltd is one of three companies which hold the issued share capital in Stargroup Pty Ltd. The defendant's cousin, Susan Naismith, is the sole director and shareholder of Tomialcocl Pty Ltd. Tomialcocl Pty Ltd is the trustee of a discretionary trust. The beneficiaries of the trust include Ms Naismith's cousins and hence include the defendant. Mr Freeman says that being a beneficiary of the discretionary trust does not breach the restraint covenant because a beneficiary of a discretionary trust has no proprietary interest in the property of the trust and hence has no proprietary interest in the business of Star Payment Systems or its assets. It is arguable that a beneficiary of a discretionary trust which has an interest in a business is indirectly involved as a beneficiary in the business notwithstanding that he has no proprietary interest in the business or its assets.
The evidence discloses a number of other connections between the defendant and Star Payment Systems. The defendant has sworn that in September 2013 Mr Fairclough asked him if he could suggest a company to assist him in creating an internet website and the defendant recommended that he contact Nick Russell of Woocom. The website designed by Woocom bears some notable similarities with the plaintiff's website. The response generated by the Star Payment Systems' website bears the image for the Stargroup card and the words 'the Stargroup card ‑ coming soon'. The former name of the defendant's incorporated accounting practice was Stargroup Financial Services Pty Ltd.
The connections between the defendant and Star Payment Systems and its business to which I have referred when taken together are capable of giving rise to the inference that the defendant has breached the covenant by being directly or indirectly involved in the Star Payment Systems' business as a consultant, advisor, contractor, principal, agent, manager, or beneficiary. The evidence is sufficient to establish that the plaintiff has made out a prima facie case for final relief.
Damages inadequate
An injunction to restrain an apprehended breach of a restrictive covenant will not usually be declined on the basis that damages are a sufficient remedy: Emeco International Pty Ltd v O'Shea [2012] WASC 282 [20] (Edelman J). In these sorts of cases damages are usually inadequate due to:
1.the difficulty of detecting breaches of the obligations;
2.the difficulty of establishing causation between any loss of business with customers and any actions of the defendant; and
3.the difficulty of the calculation of the quantum of any damage arising from loss of business;
In this case injunctive relief should not be refused on the ground that damages are a sufficient remedy.
Balance of convenience
The plaintiff submits that it will suffer significant injustice if an injunction is not granted and it later succeeds at trial. The plaintiff submits, and I accept, that Star Payment Systems has entered into the same market in which the plaintiff operates, it has retained the services of some of the plaintiff's former staff, is utilising the services of the same accountants (and therefore the defendant) and is distributing the same brand of ATMs as the plaintiff in the same market, using the same pitch on its website, from the business premises formerly occupied by the plaintiff. The plaintiff further submits, and I accept, that the defendant, as a long‑time executive director of the vendor of the Business and with intimate knowledge of its operations, systems, clients, suppliers and staff and of the ATM deployment business generally is able to provide Star Payment Systems significant assistance which is likely to be detrimental to the plaintiff.
The defendant denies that he has engaged in the conduct alleged by the plaintiff, other than by his company providing accounting services to, and leasing premises to, Star Payment Systems and being a beneficiary of the discretionary trust of which Tomialcocl is trustee. The plaintiff does not seek to prevent Ezetax continuing to lease the premises to Star Payment Systems. The defendant acknowledges that he may take steps to have himself removed as a beneficiary of the discretionary trust and does not submit that that would cause him any detriment. The defendant's company, Ezetax, and therefore the defendant, would suffer loss if it is restrained from continuing to provide accounting services to Star Payment Systems. There is no evidence of the fees paid by Star Payment Systems to Ezetax and no evidence that the loss of those fees will cause any serious detriment to Ezetax. Indeed, counsel for the defendant did not submit that restraining the defendant from providing accounting services to Star Payment Systems through Ezetax would cause any serious prejudice to the defendant. Any such loss could be adequately compensated by damages awarded pursuant to the plaintiff's undertaking as to damages.
I find that the balance of convenience favours the grant of an interlocutory injunction.
Form of injunction
The terms of an interlocutory injunction restraining a party from engaging in activity must do so in clear terms. The order should tell the person to whom it is directed what it is that he must refrain from doing. Where an injunction is sought to restrain a party from acting in breach of a contractual undertaking it will often not be sufficient for the order to reproduce the terms of the contract. This is such a case. The parties differ as to whether providing accounting services to a competing business, leasing premises to the business or being a beneficiary of a discretionary trust with an interest in such a business breaches the restraint clause.
On the evidence before the court injunctive relief is appropriate. However, the terms of the order proposed by the plaintiff do not clearly inform the defendant what it is that he must refrain from doing. It is not for the court to spend time formulating the kind of order which can be made or to suggest a form of order which may meet the plaintiff's case: Greetings Oxford Koala Hotel Pty Ltd v Oxford Square Investments Pty Ltd (1989) 18 NSWLR 33 [42]. I will not attempt to formulate the terms of an appropriate order. However, the order should make clear the following. First, the defendant is to be restrained from indirectly, through his company Ezetax, providing accounting services to Star Payment Systems. Secondly, the defendant may continue to lease to Star Payment Systems, through the defendant's company Ezetax, premises from which Star Payment Systems conducts its business. Thirdly, the defendant should take steps to have himself removed as a beneficiary of the discretionary trust of which Tomialcocl is trustee. Fourthly, the defendant should not otherwise be involved in any capacity in the business of Star Payment Systems. The plaintiff should confer with the defendant in relation to the terms of an interlocutory injunction and then bring in a minute of proposed orders.
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